As the world's biggest music club, BMG Direct was savvy enough to know it couldn't just toss together a Web site and become an overnight success online. Given the highly competitive environment of the Internet-where contenders like Amazon.com, as well as price-comparison sites like Dash.com, are just a click away-simply being aggressive wasn't enough. The vendor needed a way to stand out from the crowd, and it found it with analytics applications.

Thanks to an online infrastructure supported by various marketing analytics, BMG can now segment and track customers based on over 240 different criteria and use those segmentations to conduct highly targeted marketing campaigns. To foster customer loyalty and to create virtual exit barriers, BMG also pulled personalization technologies into the mix. And the company isn't stopping there: It continues to experiment extensively with variables like message formatting, campaign timing and a host of others in its efforts to lure and keep customers for the long term.Then there's Lands' End. The well-known catalog retailer no longer views customers simply in terms of size, industry or geography. Instead, it projects a lifetime value for each client based on buying and behavior patterns and then uses these projections to assign CRM resources accordingly.

A Taste of What's to Come

Both BMG and Lands' End are early on the curve of what some analysts are describing as the wave of the future. In not so many years, they say, all businesses will segment and sell to customers based not on traditional demographics-size, industry or geography-but on buying and behavior patterns that change at each stage of the customer lifecycle. Using a host of tightly integrated tools and technologies, they'll interact with customers and respond to their changing needs in real time, chameleoning themselves on the fly so that they look, feel and act in a manner most desirable to individual preferences.

Meta Group and its affiliate, IMT strategies, have labeled this very dynamic selling model "Customer Lifecycle Management" (CLM). They lay out the details in their Customer Relationship Management study: 2000-a report based on 50 in-depth interviews with a bellwether sample of best-in-class CRM-user companies as well as a more generalized survey of almost 900 businesses.

"In a nutshell, CLM is using the customer as the design point for your business strategy," explains IMT's Steve Diorio, project director for the report. "The goal is to understand how various types of customers-be they individuals or businesses-want to be interacted with at each stage in the lifecycle. Once you have that understanding, you can tailor people, processes and technologies to respond to customers like never before."

Does this model represent the be-all-end-all? "No," asserts Michael Maoz of Gartner Group, which tagged the phrase "Customer Relationship Planning" (CRP) to describe essentially the same paradigm. "But CRP is essential in that it uses customer data to match an organization's resources with customer needs. It's the direction in which companies will be heading. In fact, I'd say that in terms of grasping the concept, most executives are already there. They don't question the need for it, but actually getting there is an entirely different matter. A lot of things must happen before CRP can become reality."

Maoz predicts most companies will spend the next few years planning CRP strategies but will continue to execute tactically (as they've done for years now) through at least 2005. "For some companies," he adds, "I even question whether they can ever bring this model to fruition, but it's what they should aim for."

Put Technology Dots in Place

How will businesses evolve to a CLM model? For most, by playing a sort of grand-scale, corporate connect-the-dots. The "dots" are various technologies, processes and channels that must all be integrated and optimized in order to render the big picture.

Under the Meta/IMT scenario, the connect-the-dots strategy is a four-stage process. Right now, most companies are at stage 1, says Diorio. They can't link dots if the dots aren't there in the first place, so they've got to select and implement a mix of technologies that will meet their needs. The goal in doing so is to build what Meta and IMT refer to as a "CRM ecosystem," which consists of three categories of applications:

Operational applications are those that are customer-facing and transaction-oriented. They include back office systems (ERP, supply chain management and legacy systems), and front-office applications for sales, marketing and service (such as Siebel and Clarify). About 80 percent of the companies surveyed for the Meta/IMT report have some degree of operational technology in place.

Collaborative applications help facilitate coordination and communication between a company and its customers. They include voice applications (IVR, ACD), conferencing applications (for tele- and Web-conferencing), e-mail applications (response management) and fax/letter applications. Over half of the companies surveyed by IMT and Meta have some type of collaborative technology today.

Analytical applications pull together data collected from operational systems and then dissect this data for business performance management purposes. Analytical technologies include data warehouses, data marts and marketing analytics applications (such as Exchange and E.piphany). Among the companies surveyed by Meta and IMT, about a third have deployed some type of analytical technology. Just under 75 percent intend to invest in this technology next year.

Meta Group's Liz Shahnam underscores that all three categories of applications are necessary to create a real CRM ecosystem and to ensure its balance. Given that such a mix represents a lot of underlying technologies, where should a company begin? As always, she says, with areas focused on the customer. These areas frequently represent the company's greatest pain points. "Often, for instance, companies have aging call centers or sales teams that have no way to track leads. In those cases, they should begin by deploying operational applications and then implement the analytics and collaborational pieces that go along with just that slice." Such a piece-by-piece approach is far easier to digest-both strategically and financially-than is taking on everything at once.

Challenges:

Beyond hassles typically associated with software selection and implementation, companies must decide whether to purchase best-of-breed point solutions or to buy software suites. Analysts tend to prefer point solutions but acknowledge that cost can be prohibitive for mid-tier and small companies. Companies purchasing suites should still look to point solutions to address mission-critical areas.

Link the Technologies

If deploying operational, analytical and collaborative applications gives a company the backbone for its CRM ecosystem, linking those systems is what makes the ecosystem hang together. This connecting of technology dots represents the second stage in progressing towards a CLM model, and to date, only a small percentage of firms have done so. Some of the major cataloguers-like BMG and Lands' End-are among the handful. They're using call center systems on the operational end, various Web technologies that are collaborative, and analytics that do marketing segmentation and create a personalized experience. "With these technologies integrated," explains Shahnam, "call center agents can see that you cruised the Web site and aborted your shopping cart. They can also see that you've been targeted for a campaign and so can ask if you'd like to buy the right sweater today."

Because it's so early in the game, most companies that have accomplished a degree of integration are hard-pressed to quantify benefits. "For many, the incentive for integrating in the first place wasn't so much to get ahead as it was for damage control," asserts Diorio. "So the benefits they're citing are soft-things like improved customer service, fewer e-mails falling through the cracks and those kinds of things."

Challenges:

As companies begin tying together applications within each category and then linking different technology categories together, cultural issues that separate departments and divisions within the organization will become apparent. Beyond these issues, companies will have to determine the extent to which various types of data should be integrated-a task that can be far more difficult than it sounds.

Introduce Hybrid Selling

Once the technologies are integrated and a CRM infrastructure is in place, companies will be ready to advance to stage 3. This is where they pull their channels together to develop what Meta and IMT call "hybrid selling systems"-a highly coordinated mix of multiple channels that are managed dynamically to deliver both top and bottom-line value.

"Down the road," asserts Diorio, "a hybrid approach will become inevitable for any business that expects to grow profitably and to effectively cover today's rapidly changing markets." IMT and Meta found that while most organizations currently have an average of three sales channels, they haven't figured out how to make these channels work together. The structures, policies and measurements they have in place aren't designed to support integration of the independent channels, nor can they adequately address the dynamic nature that channels exhibit. "Sales channels are in a constant state of flux," explains Diorio. "They grow and contract at different rates, yet they are managed very statically." When channels are integrated and the integration is supported by a technology infrastructure, managing on the fly becomes much more feasible. The channels can truly work together towards a coordinated effort, and that's when companies begin to reap the real quantifiable benefits they've been seeking.

Challenges:

No pain, no gain, and companies are likely to experience pain as they begin pulling together their channel efforts. To minimize issues stemming from cultural differences and channel conflict, IMT recommends that managers do the following: Define roles for specific channels within the selling process; create incentives for channels to work together; define specific boundaries for managing conflict; and create measurements and organizational approaches that reflect the new selling model (sales quotas, for instance, must reflect the performance of a sales rep collaborating with other parts of the selling system).

Yet another big question mark for companies is the e-channel, which in most cases isn't ready to integrate with other channels yet. "E-channels need to stay in an incubator until companies better understand what they are and how to manage them," asserts Diorio. They're still trying to determine, for instance, issues such as: Which transactions are Web-only? How does Web marketing fit into our overall sales and marketing mix? Who owns a call that comes in via the Web? Diorio underscores that if companies jump their guns and put the Web on equal status with other channels too early, they stand to kill it. "This channel is simply not ready to stand up to the performance measurements used to gauge other channels," he says.

When will it be ready? Diorio cites two thresholds. The first is when Web sites receive over 500 inbound e-mails per week, since at that level, companies can't handle the e-mails ad hoc anymore. The second is when companies identify a cross-section of the client base that only wants to deal via this medium. (HP, for instance, found that a quarter of clients coming to its Web site wanted to do business that way or not at all.)

Execute CLM

As hybrid selling becomes reality, companies will begin progressing towards true CLM. Utilizing a combination of data pulled from their unified channel efforts plus a host of analytical applications, they'll be able to identify specific behavior patterns throughout the client lifecycle. Then they can develop strategies for interacting with and responding to customers in real time, in accordance with those patterns.

"At this stage," explains Diorio, "we're no longer identifying clients in terms of vertical market, size or geography, but in terms of how they want to be serviced-whether they're a Leave-Me-Alone-Larry versus a Hold-My-Hand-Harriet. We know how each will likely behave as we engage, transact with, service and support them, so we build a strategy of people, processes and technology using these behaviors as the design point." When that happens, companies can build and foster customer relationships more effectively than ever before, which is the real power behind CLM.

The CLM model represents the culmination of a lot of efforts and planning, meaning it won't be an overnight phenomenon. It's going to take time, and obviously, it's going to take money. "still," adds Diorio, "it is going to happen, and companies that want to maintain their competitive edge for the long-term should be planning for it now."

Challenges:

As Maoz points out, this new model implies getting the right person in the right place at the right time with the right offer. "In itself," he says, "that represents a huge leap from where we are today. Because we're often talking about things like unassisted customer interactions on the Web and about an ever-changing target-the customer-many of the boundary issues, such as personalization, opt-in and data security, that must be tackled have yet to be identified. But at the most basic level, companies must migrate from the very tactical perspective that they have today-how do we shorten the sales cycle or create one-touch call resolution?-to actually seeking ways to build more effective customer relationships. While there's lot of lip service along these lines right now, we see only select companies truly moving in that direction. Again, it requires a huge leap and a cross-enterprise commitment as well."

Chief Connect-the-Dots Officer?

Given the numerous challenges inherent in moving from where we are now to the CLM model of the future, Meta's Liz Shahnam offers a final suggestion: Consider creating a new role-the Chief Customer Officer-to keep everything on track. "As the name implies, this role, be it an individual or a team, should be responsible for the customer," she says. "I'm not talking about customer satisfaction-that falls under the realm of the V.P. of Customer Service. I'm talking about everything that has to do with the customer being a design point for all efforts. While this person would have dotted-line responsibilities for various efforts, the only direct responsibility would be for the CLM program management office." Shahnam says that a handful of companies have already created this position, and she expects more to do so in the future.

In the meantime, what's to be expected in the year ahead? "Last year was a planning year," says Shahnam. "This year is a doing and a spending year. We won't see full-scale integration yet, but it will be in the starting stages. Companies are beginning to realize that the only true competitive advantage is having a customer, and over time, that realization stands to overhaul the entire way they do business."